The Law of Agency

An Agent is defined as a relationship between two parties called PRINCIPAL and

AGENT, whereby, the function of the agent is to create a contract/s between the
principal and third parties( or to act as the representative of the principal in other
ways

Agency is the relationship that subsists between the principal and the agent, who has
been authorized to act for him or represent him in dealing with others. Thus, in an
agency, there is in effect two contracts i.e.

a) Made between the principal and the agent from which the agent derives his
authority to act for and on behalf of the principal; and

b) Made between the principal and the third party through the work of the agent.

Creation of Agency

By express appointment by the principal

Generally an authority is conferred by the Principal to the Agent. If the agent exceeds
this authority, then the principal will not be bound and the agent will be personally
liable to the third party for breach of warranty of authority.

However the common law may extend the scope of the agent’s authority beyond
this, to protect an innocent third party.

The principal will then be bound to the third party, but the principal can sue the
agent for overstepping his actual authority, if it’s a breach of the agency contract.

By implied appointment by the principal

The law can infer the creation of an agency by implication when a person by his
words or conduct acts as if he has such authority and the principal acknowledges
that he was entitled to act accordingly. Implied authority, is not specifically
mentioned by contract but assumed or implied by the nature of the relationship, are
presumed to be given to an agent if that authority is necessary to perform the duties
or responsibilities otherwise assigned to the agent or representative.

For example where one person allows another person to order goods on his behalf
and habitually pays for them, an agency may be implied. In such a case, he will be
bound by the contracts as if he has expressly authorized them.
- Chan Yin Tee v William Jacks and Co.

Apparent / Ostensible authority

While actual authority arises from an agreement, apparent authority is that which the
law regards the agent as having, although principal may not have consented to the
agent having such authority. Apparent authority can happen in two situations:

a) Where principal by words/ conduct, makes a third party to believe that ‘agent’ has
authority to make contract for the principal

Where the agent previously had authority to act, but that authority was terminated
by the principal and the principal did not inform third parties that he has terminated
it

By necessity
The origins of the doctrine of necessitous intervention by someone who is in a legal
relationship with the defendant lie in the principle of agency of necessity, where an
agent went beyond his or her authority by intervening on behalf of the principal in
an emergency. Because of the circumstances of necessity, particularly the
impracticability of the agent communicating with the principal, the courts were
prepared to treat the agent as though he or she had the necessary authority to do
what was reasonably necessary to save the principal's property. If an agency of
necessity was established, the agent would be reimbursed for the expense incurred
in rescuing the principal's property.

An agency of necessity may be created if the following three conditions are met:

a) It is impossible for the agent to get the principal’s instruction.

b) The agent’s action is necessary, in the circumstances, in order to prevent loss to

the principal to prevent them from rotting.

c) The agent must have acted in good faith.

In an urgent situation, an agent has authority to act in the best interest for the
purpose of protecting his principal from losses.

- Great Northern Railway Co v Swaffield

Facts: Swaffield arranged for a horse to be transported to himself care of a railway

station owned by the plaintiffs. The horse arrived at the station however Swaffield
was not there to meet it. As the plaintiffs could not contact Swaffield before nightfall
and had no facilities to accommodate the horse, they sent it to a livery stable.

Issue: Could the plaintiffs recover from Swaffield the amount they paid the stable for
the horse's accommodation?

Held: The plaintiffs had acted reasonably in placing the horse in the stable and were
entitled to recover the expenses (which were reasonable) from Swaffield.

By Estoppel
A person cannot be bound by a contract made on his behalf without his authority.
However, if he by his words and conduct allows a third party to believe that that
particular person is his agent even when he is not, and the third party relies on it to
the detriment of the third party, he (principal) will be estopped or precluded from
denying the existence of that person’s authority to act on his behalf.

Ratification by the Principal

Agency by ratification can arise in any one of the following situations:

An agent who was duly appointed has exceeded his authority; or

A person who has no authority to act acted as if he has the authority.

When one of the above said situations arise, the principal can either reject the
contract or accept the contract so made.

When the principal accepts and confirms such a contract, the acceptance is called
ratification. Ratification may be expressed or implied.

The effect of ratification is to render the contract as binding on the principal as if the
agent had been properly authorized before hand.

Duties of an Agent to his Principal

Duty of an agent is list down from s 164 to s 178 of the Contract Act 1950.

To obey principal’s instruction

To exercise care and diligence in carrying out his work and use such skill as he
possesses

To render proper accounts when required

To pay to his principal all sum received on hi behalf

To communicate with the principal

Not to let his own interest conflict wit his duty

Not to make an secret profit out of the performance of his duty

Not to disclose confidential information or documents

Not to delegate his authority

Duties of Principal to His Agent

The duties of a principal to his agent are provided in sections 175 to 178. The main
duties are

To pay the agent the commission or other agreed remuneration unless the agency
relationship is gratuitous.

Not to willfully prevent or hinder the agent from earning his commission.

To indemnify and reimburse the agent for acts done in the exercise of his duties.

Termination of Agency
Sections 154 to 163 of the Contracts Acts states the various ways an agent’s authority
may be terminated.

By act of the party

a) By mutual consent (both party agree)

b) By revocation by Principal

c) By renunciation by Agent

All the above can be done by giving notice (reasonable notice in the case of
revocation and renunciation)

d) By the performance of the contract of agency. This happens when agency is

created for single specific transaction. (sc 154 CA)

e) By the expiration of the period fixed/implied in the contract

By operation of law
By the death of either principal or agent. Because relationship between principal and
agent is confidential and personal. (Sec 161 Illust. CA). Section 162 CA states when
the principal dies, the agent must take all reasonable steps to protect and preserve
the interests entrusted to him.

By the subsequent insanity of either principal or agent. A person of unsound mind

cannot enter into contract to appoint an agent or to act as an agent.

By the bankruptcy/insolvency of principal.

By the happening of an event which renders the agency unlawful. This is an

application of the doctrine of frustration to contracts. For agency contracts, there are
examples of termination when the principal becomes an enemy alien because of war
or where the subject matter is lost/destroyed.

Stevenson v Aktiengesellschaft Fur Cartonnagen Industrie

When an agency is terminated, the A agent cannot bind the principal in transactions
that he may have entered into with third parties. He will be personally liable to third
parties for the contract.

-ends-
Undisclosed principal
If An Undisclosed Principal] Exists It Is, To Say The Least, Extremely Convenient
That He Should Be Able To Sue And Be Sued As A Principal, And He Is Only
Allowed To Do So Upon Terms Which Exclude Injustice” - Keighley, Maxsted &
Co. V. Durant [1901] AC 240 (HL), Per Lord Lindley.
Assess The Extent To Which The Law On Undisclosed Agency Reflects This Statement.

In considering the extent to which the law as it relates to undisclosed agency reflects
the above statement by Lord Lindley in the case of Keighley, Maxsted & Co. v.
Durant, this essay will outline what undisclosed agency is before then evaluating the
laws development in this context. Then, it will also be necessary to relate the current
law to Lord Lindley's aforementioned statement in the case of Keighley, Maxsted &
Co. v. Durant to determine whether it serves to reflect the position in relation to the
law on undisclosed agency. Finally, this essay will conclude with a summary of the
key points derived from this discussion regarding the extent to which the law
regarding undisclosed agency reflects the aforementioned statement made by Lord
Lindley.

To begin with, in seeking to explain undisclosed agency it is interesting to look at the

following hypothetical situation - if A's agent B seeks to formulate an agreement with
C, but A's existence and identity are unknown to C, A is then the 'undisclosed
principal'. As a result, since nearly every legal theorist who has considered
undisclosed agency in the context of contract theory has concluded the established
rules are anomalous, it is perhaps hardly surprising Lord Lindley said in the case of
Keighley, Maxsted & Co. v. Durant “If an undisclosed principal] exists it is, to say the
least, extremely convenient that he should be able to sue and be sued as a principal,
and he is only allowed to do so upon terms which exclude injustice”. Therefore, it was
held by the House of Lords, reversing the Court of Appeal's decision, a contract
made by someone intending to contract on behalf of a third party but without their
authority cannot be ratified by the third party to render them able to sue or liable to
be sued. This is where the person who made the contract did not profess to be
acting on behalf of the principal there must be on the part of the person acting
without authority the express intention to contract on behalf of the other party and
without it there can be no ratification of the agreement in the circumstances of a
given case.

Generally, the principal involved with any given agency transaction is able to ratify
the contract to give the agent 'actual authority' at the time of the contract so long as
the agent has looked to make it clear to the third party they intended to contract on
behalf of a principal in the circumstances of any given case.6 With this in mind, it was
believed the appropriate legal doctrine is not clear between estoppel, 'apparent
authority', implied 'actual authority' or inherent agency power in looking to cross-
check this understanding with the theory the law of agency has been worked by the
domestic courts to produce the most efficient way of dealing with whatever situation
arises. In addition, in the context of undisclosed principals in keeping with
undisclosed agency the domestic courts have also argued that the principal in such
transactions is not important in the vast majority of contractual agreements.
Moreover, contracting parties should not be compelled to take on any terms found
to be significantly different to those which they had agreed upon. This is because, for
example, the decision of the court in Watteau v. Fenwick serves as a particularly
strong example of this understanding of the legal position when the agent acted
against the express wishes of the principal.

Many academics have discussed the problems concerned with the undisclosed
agency rule that Lord Lindley alludes to in his aforementioned statement in Keighley,
Maxsted & Co. v. Durant and also recognised that it goes against the fundamental
principle of contract law. Moreover, the law of agency now serves as an exception to
the rules of privity in the law of contract and has looked to account for the provisions
of the Contracts (Rights of Third Parties) Act 1999 and the Prevention of Corruption
Acts 1889 & 1916 in this regard. In addition, the Harvard Law Review has also
considered the fact the courts infer the identities of the parties to the contract is
irrelevant to the standard of performance is fundamentally flawed. This is because
the development of the law has ignored the commercial reality some parties simply
do not want to work with each other. Therefore, the law of contract has sought to
make allowances for personal prejudices because a provision forbidding an
undisclosed principal or prevention of assignment is valid.

Nevertheless, where an agent hides the fact they represent someone else and are
acting on their authority as part of the theory of undisclosed agency, either the agent
or undisclosed principal could be sued in any given case. At the same time, however,
it is commonly understood the principal is largely estopped from denying the agent's
role so it is immaterial whether they have 'actual authority' or not in the
circumstances of any given case that arises. This understanding of the legal position
was then affirmed in the case of Smith v. Hughes where it was recognised, whatever
anyone's intentions may be, where they conduct themselves so another reasonable
person would believe they were assenting to the terms proposed by another as part
of a given agreement, they would be as bound as if they had intended to agree with
the other terms. At the same time, however, it was recognised in Freeman v. Cooke
that a bankrupt's false statements regarding whom owned certain goods operated as
conclusive evidence against bankrupt and plaintiffs who claimed the property was
not the bankrupt's when they said the goods belonged to the bankrupt's brother, but
after the defendant had altered their position by seizing the goods, the bankrupt
confessed the goods were his own. Conversely, however, in Union Credit Bank Ltd v.
Marsey Docks & Harbour Board where it was recognised that a party who signed a
blank delivery order was estopped from disputing the act of someone they had
authorised to fill up the order as part of a given agreement.

To conclude, having considered the extent to which the law regarding undisclosed
agency reflects the aforementioned statement by Lord Lindley in Keighley, Maxsted
& Co. v. Durant, it is clearly difficult to strike an appropriate balance between the
rights of all parties within the remit of such transactions where an undisclosed
principal is involved. This is because a lot of the matters pertaining to determining
whether there is an 'agency relationship' in the circumstances of any given case of an
undisclosed principal is down to the reading of the facts as they stand with no
absolute rule regarding the situation where a situation of undisclosed agency arises.
Such a reading of the undisclosed agency relationship is based on the fact there are
problems about where the agency relationship can be ratified so an afflicted party
may sue to have their rights recognised. That this understanding has arisen may be
considered somewhat detrimental to the fact the interests of third parties are
arguably favoured. This is because they cannot be expected to look beyond what is
presented to them on the facts in determining whether they are party to a more
complex agreement than merely representing and furthering their interests
regarding a given transaction in keeping with Lord Lindley's aforementioned view in
Keighley, Maxsted & Co. v. Durant.
The Issue Of Ratification
This problem is concerned principally with the issue of ratification. Other issues arise
such as breach of warrant of authority, and the agent’s duties towards his principal. I
will discuss the problem in relation to the English law and the American Restatement
respectively.

PART ONE: Solution with Respect to English Law

1. Unauthorised Agency: General

The first issue that I will discuss in advising Hamish in his course of action with
respect to English law is the fact that Gordon was not authorised by Scott to
negotiate a contract with Hamish, in his capacity of managing director of Hebridean
Airways (“Hebridean"). Gordon was therefore acting as an unauthorised agent, and as
we will see this has important ramifications in respect of the enforceability of the
agreement.

Where both the principal and the agent have given their consent to the agency
agreement, the agent will be said to have actual authority. Although the general
principle is that contracts entered into on behalf of a principal by an agent acting in
excess of his authority are invalid, with the objective of facilitating the fluidity and
efficacy of commerce, the common law recognises situations where an agreement
concluded by the unauthorised agent may still be enforceable [1] . Accordingly, there
are two exceptions to the rule that contracts entered into by an agent without
authority are generally unenforceable: firstly, where apparent authority can be shown
to exist; and secondly, where the principal later ratifies the unauthorised action of the
agent [2] .

In relation to Hamish’s case I will now discuss each of these possible exceptions in
turn, to ascertain if Scott will be able to enforce the contract against Hamish. If
neither exception is possible, the presumption that contracts entered into by an
unauthorised agent are unenforceable will not be rebutted, and Hamish will be able
to avoid the contract.. It is clear from the facts presented that Gordon’s acts were not
authorised, and therefore he was acting in the capacity of an unauthorised agent.

2. The Doctrine of Apparent Authority

The doctrine of apparent authority is not relevant to Hamish’s case. The doctrine
provides that a principal may in fact be bound by acts of another in situations where
he ‘held out’ that other as his agent. In English law, the doctrine has its basis in the
doctrine of estoppel (consistent with the whole common law approach which focuses
on the protection of the principal)- i.e. the principal is estopped from reneging on his
representation that was relied upon by the third party [3] . This is important because,
as a result the doctrine of apparent authority cannot be used as a cause of action, it
is a “shield not a sword" [4] . Therefore Hamish will not be able to invoke the doctrine
in an action against Scott. It will only come into play in a situation where Hamish sues
Gordon. Gordon may be able to rely on the doctrine to pass on liability to Scott in
this event. However, due to the constraints of this discussion, I will focus on actions
available to Hamish.

Despite this relatively narrow construction of apparent authority, parties can rely
often on the broader doctrine of ratification to enforce their contract.

3. The Doctrine of Ratification

a) General
The main issue that arises in the case before me is that of ratification. Taking into
account the fact that the doctrine of apparent authority cannot be used as a cause of
action in itself, the only option available to Lionel (acting on behalf of Scott) in
establishing an enforceable contract against Hamish will be to rely on the doctrine of
ratification. Failing this, the presumption that contracts entered into by an agent
without authority are invalid will prevail and Hamish will be able to avoid the
contract.

In situations where a person enters into a contract purportedly on behalf of the

principal, without being authorised to do so, it is the sole prerogative of the
principal [5] to endorse and adopt such an action, retrospectively [6] . Brown goes on
to provide an instructive description of ratification as being a sort of ‘curative’
measure for the agent’s initial lack of authority [7] . The retrospective nature of the
doctrine operates by effectively “clothe[ing]the agent with authority from the
outset" [8] . In other words ratification has the effect of retrospectively granting the
agent with authority to act on behalf of the principal. Prior to ratification a contract is
unenforceable against a third party [9] . Ratification can be either express or
implied [10] . Ratification can be implied by conduct (mere acquiescence or silence
will not usually suffice), usually in the form of the principal’s performance of some of
his obligations under the contract [11] .

In this case it is clear that Simon, acting as managing director of the company (his
capacity in this regard will be discussed a in the next section), intended to ratify the
contract by instructing his office manager to commence manufacture of the subject
matter of the contract. The letter sent by Lionel on behalf of Scott could also be
considered express ratification. Therefore the ratification took place on the 30th May.
b) Requirements
It is important to discuss the requirements that must be established in order for a
valid ratification to occur.

Firstly, and arguably most importantly, ratification can only take place where the
principal is both disclosed and named [12] . The seminal decision in which this was
postulated is Keighley Maxsted v. Durant [13] . Here it was held that a transaction
carried out by an agent acting in excess of his authority (buying a consignment of
wheat for a higher price than he was authorised) could not be ratified as the agent
had purported that he was acting on his own account and not on behalf of a
principal. This requirement will be easily satisfied by Scott as Gordon signed the
contract ‘on behalf of’ Scott. Therefore Scott, the principal, was both disclosed and
named.

Secondly, the principal must be in existence at the time of the agent’s unauthorised
act [14] . This requirement comes into play when dealing with agents acting on
behalf of companies which have yet to be formed [15] . This situation is now
governed by the Companies Act 1985, s 36 C (1). However, this requirement is clearly
satisfied by Scott as the company is already incorporated.

The third requirement for ratification to take place is that the principal must have the
capacity to ratify the transaction both at the time of the agent’s unauthorised action,
and at the time of ratification [16] . If the managing director of a company is acting in
excess of his powers but within the scope of the memorandum of association, then
the ratification can occur by ordinary resolution of the shareholders [17] . However, it
is likely that Simon as such authority as managing director.

The final requirement is that the principal must have knowledge of all material facts
in which the unauthorised act was carried out, unless he undertakes the risk and acts
regardless of what the circumstances have been [18] . In Hamish’s case, it appears
that Gordon was upfront with Scott about the transaction. Furthermore it appears
that Scott took the risk in ratifying without requesting further information, and
therefore it can be imputed that he had no regard for the circumstances in which the
deal was done.

Having examined the principal requirements for a valid ratification, it seems that
Scott will be easily able to convince an English court that they have satisfied them all.

c) Is Hamish’s withdrawal valid?

The next issue that arises in Hamish’s case is whether or not his withdrawal is valid.
The rule in Bolton Partners v. Lambert

In the controversial decision of Bolton Partners v. Lambert [19] , it was held that a
third party has no right to withdraw from the contract before ratification, based on
the retroactive effect of the doctrine. The case involved a third party who made an
offer to the managing director of the principal. The managing director accepted the
offer despite the fact that he lacked the authority to do so. The third party then
attempted to withdraw his offer, but ten days subsequently the principal ratified the
managing director’s acceptance. The court held that the principal’s ratification had
retrospective effect, rendering the attempted withdrawal ineffective [20] .

Brown argues that contracts such as these, lack mutuality. He views it as being unjust
that the principal can opt not to not to ratify the contract without consequence,
whereas the third party enjoys no such right [21] . The application of the rule can
potentially be gravely prejudicial to the third party. In situations where the agent is
not authorised, the third party is at the mercy of the principal who retains the right to
ratify as an ‘option’ [22] . The third party is left to bear the brunt of any market
changes. The third party is left in an uncertain precarious position [23] . The rule has
also attracted judicial criticism [24] . However, the rule in Bolton Partners although at
first glance appears to be harsh, is justifiable when we remind ourselves that the third
party was contractually bound at the point in time that the agent accepted his offer
due to the retrospective effect of ratification [25] . Despite the aforementioned
academic opposition Bolton Partners is binding on any English court other than the
House of Lords [26] . It remains to be seen how if the House of Lords will endorse it,
but it has stood firmly as good law for over 100 years [27] .

According to the rule in Bolton Partners, it is clear that Hamish’s attempt to withdraw
from the contract would be held to be invalid in an English court.

d) Exceptions to the principle of retroactivity

Although the rule in Bolton Partners is accepted to be the general rule on
withdrawal, there are some exceptions, to counteract the aforementioned potential
for retroactivity to be overly prejudicial to the third party. The exception that I feel is
relevant to Hamish’s case, is that ratification must take place within a reasonable
time [28] .

Although in certain contracts, parties will often elucidate time limits whereby
ratification is to occur in the terms of their agreement, what is the situation when
such time limits are not prescribed, as in Hamish’s case? In these situations the courts
will look to what is a reasonable time in light of the circumstances. Fry L.J. stated that,
“if the ratification is to bind it must be made within a reasonable time after
acceptance by an authorised person" [29] . It is left to the discretion of the courts to
decide what time is reasonable in the circumstances, taking into account whatever
factors they feel are relevant, with the ultimate goal of protecting the third party
against potential prejudice [30] .

In Hamish’s case, I am of the opinion that he may be able to argue that in the
circumstances, due to the highly volatile nature of the airline market, and the fact
that Hebridean is on the brink of insolvency, that twenty five days was an
unreasonable amount of time to delay ratification in the circumstances. I feel that this
is the only weakness in Scott Ltd’s case in showing that their ratification is valid.

Having examined all of the relevant elements of the doctrine of ratification, I feel that
Scott Ltd. will undoubtedly be able to prove that they ratified Gordon’s contract with
Hamish, and furthermore that this ratification is valid. It is clear from the case of
Bolton Lambert that Hamish’s attempted withdrawal is invalid. However, I would
encourage Hamish to argue that the ratification did not occur within a reasonable
time. If successful he may be able to avoid the contract on this basis.

4. The Agent’s Fiduciary Duty

Another issue which I feel is worth mentioning briefly in this case is the fact that
Gordon may have been in breach of his fiduciary duty towards Dawson from the
offset of his negotiations in respect of the contract between Scott Ltd and Hebridean.
If this is the case the latter contract could be avoided by Hamish.

Due to the unique relationship between the agent and the principal, there is an
extremely high fiduciary duty owed by the agent to the principal. “A fiduciary must
act in good faith; he must not act for his own benefit or the benefit of the third
person without the informed consent of his principal" [31] . As Brown postulates, this
fiduciary duty is extended insofar as an agent cannot represent two principals whose
interests may conflict [32] . Although as Conaglen points out much of the case law
and academic commentary has overlooked the way the fiduciary duty effects
transactions where an agent is representing two fiduciaries with conflicting
interests [33] . Although it is well established that an agent will be in breach of his
fiduciary duties where an agent’s interests conflict with those of his principal [34] ,
there is little mention of the situation that applies in a case like the one at hand.

The relevance that this has in the context of Hamish’s predicament is that Dawson
could take an action against Gordon for breach of his fiduciary duty towards them, in
acting on behalf of Scott Ltd whilst he was in the meeting with Hebridean in the
capacity of their agent. In relying on the general conflict of interest principles, it is
foreseeable that it could be proven that Scott was in fact in breach. He did not after
all request the express consent of Dawson, although it was contained in his agency
agreement that he would be permitted to act for several principals at any given time.
In this event the resulting transaction could be found to be invalid [35] , and hence,
Hamish would be able to avoid the contract.

5.Conclusion
In conclusion, I would advise Hamish that there is a valid contract between
Hebridean and Scott. The ratification is valid, and his withdrawal is invalid based on
English law. However if Hamish can show that Scott did not ratify within a reasonable
period he may be able to avoid the contract. I would advise him to focus his case on
this. His only other option would be if Dawson took an action against Gordon which
is possible, for breach of fiduciary duty, which would render the contract void.
However, this is an uncertain area, and would rely on Dawson taking the action.

Hebridean is bound by the contract with Scott

Hebridean can only withdraw from the contract if it can be shown that Scott did not
ratify within a reasonable time

The onus of proof is on the person alleging the agency, therefore the onus of proof
will be on Scott.

An agency may arise by

necessity
According to S142 Contract Act 1950, an agency may arise by necessity or in an
emergency. Agency of necessity means a person may become the agent of another
without being appointed as such under certain circumstances. For example, a
deserted wife or a wife who is justified in leaving her husband and she has not
working, can claim for the necessities of life from her husband according to the
income and position of the husband even though her husband unwilling to fulfill this
pledge. However, if she is has been given an adequate allowance and can support
her own life either in money or in earning capacity, then there is no arise of agency
by necessity as in case Biberfield v. Berens [1952] 2 All ER 237.

It is created when a person is entrusted with another’s property and it becomes

necessary to do something to preserve that property although he has no express
authority to do so. Besides, there must be already some existing contractual
relationship between the principal and the person who acts on his behalf. For
instance, relationship between the owner (principal) and the master of a ship (agent)
and relationship between an owner (principal) and a carrier of goods (agent) are
examples that show existing contractual relationship between principal and the
person who acts on his behalf. This kind of relationship can be illustrated through the
example as followed: Goods are sent by truck to A at Tanjung Malim with directions
to send them immediately to B at Johor Bahru. A may sell goods at Tanjung Malim if
the goods will not be able to bear the journey to Johor Bahru.

However, to create an agency by necessity, there are three conditions have to be

satisfied:

Overall, fulfillment of these three conditions can be illustrated in case Prager v.

Blatspiel, Stamp and Heacock Ltd [1924] 1 KB 566 which was regarding there must be
a genuine necessity and the agent must act bona fide. After the outbreak of First
World War, the plaintiff who was from Romania contracted to buy a number of furs
from defendant who was from London. Plaintiff was intended to wait and ask
defendant to deliver the furs which were largely paid until the war was over. At that
time, Romania was occupied by the Germans and communication between both
parties became impossible. The furs that were stored were increasing in value.
Towards the end of the war, defendant began to sell the furs locally with assumption
that occupation of German will be continued. When the war ended, the plaintiff
demanded delivery from defendant but the defendant only told the plaintiff that the
furs had been sold off under agency of necessity. The court held that there was no
agency of necessity because the plaintiff was willing to wait for goods which were
appreciating in value and it is clear that defendant acted against bona fide when
defendant sold off the furs which got higher value at that time.

a) It must be a situation that impossible for the agent to get the principal’s
instruction.

In the case of Springer v. Great Western Railway Company [1921] 1 KB 257, Great
Western Railway Company as defendant agreed to carry plaintiff’s tomatoes from
Channels Island to London, by ship to Weymouth and by train to London. The ship
was stopped at Channels Island for three days due to bad weather. Eventually, when
the ship arrived at Weymouth, defendant’s employees were on strike, tomatoes were
unloaded by casual laborers but it was delayed for two days. At that time, some of
the tomatoes were found to be bad. So, defendant decided to sell the tomatoes as
they felt that tomatoes could not arrive in Covent Garden market in a good and
saleable condition. When plaintiff found out about this, plaintiff wanted to claim
damages from defendant. The court was held that plaintiff was entitled to damages
because defendant ought to have communicated with the plaintiff when the ship
arrived at Weymouth to get instruction. As defendant has failed to communicate with
plaintiff when they could have done so, thus, there was no agency of necessity.

b) The agent’s action is necessary

This can be said as the agent’s action is to prevent loss to the principal with respect
of goods, such as perishable goods. However, agency of necessity does not arise
when goods are merely sold because of inconvenience. In the case of Great Northern
Railway Co. vs. Swaffield (1874) LR 9 Exch 132, the plaintiff railway company had
transported a horse to a station on behalf of defendant. When the horse arrived,
there was nobody to collect it. So, the plaintiff sent it to a stable. A number of
months later, the plaintiff paid the stabling charges and then straight to recover what
it had paid from the defendant. In this case, the court was held that the plaintiff’s
claim succeeded even though he is involved in the extension of doctrine of agency of
necessity to include carriers of goods by land. There was an agency of necessity
because the plaintiff was found to have had no choice but to arrange for the proper
care of the horse.

If there is no urgency and then goods are sold just because they are inconvenience
to the agent, then agency of necessity does not arise. The agent who sells the goods
may be liable in tort for conversion because those goods are not belongs to the
agent. For example, in case of Sachs v. Miklos [1948] 2 KB 23, sale of furniture done
by agent without urgency happened before it is sent to the destination or a car being
sold by agent in case Munro v. Willmott and Co. [1948] 1 KB 295 under a condition
which has no urgent thing happened .

c) Agent of necessity has acted in good faith (Bona fide)

Agent may arise by estoppels, a person cannot be bound by a contract made on his
behalf without his authority generally. But, if he allows third party to believe that X is
his agent by his words when X is not agent of him and the third party relies on it, he
will be stopped or precluded from denying the existence of X’s authority. For
example, if X tells B in the presence of C that he (X) is C’s agent and C does not deny
this statement, C cannot later deny that X is his agent if B sells good to X believing
him to be C’s agent and later sue for the price. Agency by estoppels can be
illustrated through case of Povey v. Taylor (1966) 116 NLJ 1656. The defendant let a
room in their premises to B, who conducted a similar kind of business to theirs from
it. B had business leaflets printed by the plaintiffs and B acknowledged defendant
about this. Invoices sent to defendant were not challenged by them. The plaintiffs
then sued the defendant for payment. The court of appeal held that it was
reasonable for the plaintiffs to infer that B was ordering the work with the
defendant’s authority, so the defendants were stopped from denying that authority.

Consideration or Promissory
Estoppel
Legally speaking, a contract is a legally binding agreement in law between at least
two parties which is enforced by law or by binding arbitration if it covers the
elements of a valid legal agreement [1] , while consideration is one of the key
requirements for the creation of a contract, it is known as 'the price of a promise' .
The idea behind consideration is that both parties to a contract must bring
something to the bargain. A party seeking to enforce a contract must show that it
conferred some benefit or suffered some detriment that is recognized by law. For
example, money is often recognized as consideration, but in some cases money will
not suffice as consideration, for example, when one party agrees to make partial
payment of a debt in exchange for being released from the full amount [2] .

In Australia and many, if not all, jurisdictions which have adopted the common law of
England, for contracts subject to legislation equivalent to the Statute of frauds [3] ,
there is no requirement for the entire contract to be in writing. The purpose of this
short document is to work out how consideration or promissory estoppel has been
worked in the case of Roger and Magic Pty Ltd.

2. Consideration for the manager's statement

It could be suggested that whether the manager's statement of reducing the rent
down to $2 000 per month is legally binding. Firstly, two parties of the contract have
come to agreement upon a lease at a rental of $3 000 per month within 5 years.
Since there was an economic downturn, and the financial difficulty of Roger, Magic
Pty Ltd. has sent a letter promising a less sum of rental of $2 000 each month until
the economic situation is reversed. In fact, Roger has paid $2 000 per month in
accordance with what the manager of Magic Pty Ltd. had requested during the past
eight months. As a result, there was a consideration since the statement of the
manager of Magic Pty Ltd. [2] and the action of the two parties binding to the
agreement was an exchange of a lower rent for the ascertain of the rent, which is the
price of a promise, and that turns agreement into a contract.

3. Promissory estoppel

However, if there were no consideration, would Roger implement the principle of

promissory estoppel in efforts to let Magic Pty Ltd. do what it has promised, or would
Magic Pty Ltd. argue for the obligation of Roger to pay the full rent of $3,000 per
month in accordance with the commitment agreed in the letter?

According to Justice Brennan, there are six pre-requisites for promissory

estoppel [1] and it’s important to figure out whether those pre-requisites in the cases
could be fulfilled or not.

When Roger is required to pay $ 8 000 over the past eight months, then, on the one
hand, Roger could be promise and Magic Pty Ltd. Is the promisor, with the former
assumed that the latter would accept the lower rent temporarily on the basis of the
commitment of Magic Pty Ltd. Itself. On the other hand, not only Magic Pty Ltd. has
accepted the lower rent, but also it has lent the printing machine to Roger, which
bound the two partied within the legal position whereby Magic Pty Ltd. has been
responsible for the promise it has committed. Moreover, on the basis of the reliance
of the commitment of Magic Pty Ltd., Roger has acted in accordance with what
Magic Pty Ltd. has promised via the lower payment, and Magic Pty Ltd. intended
Roger to pay under the circumstance of the stressful economic situation of its own as
the [2] guarantee of rental collection, then Roger would have to pay another $ 8 000
over the last eight months when the economic situation was tough if the situation
were getting better. In fact, Magic Pty Ltd. has mentioned the commitment of the
lower payment would be ended if the economic situation could be better in the
industry, without informing him of whether the commitment is valid or not. As a
result, it could be concluded that the detriment of Roger would occur if Magic Pty
Ltd. required him for the balance, where promissory estoppel could work. However,
the manager of Magic Pty Ltd. would argue for his company that the reclaiming is
where their contradictory lies in according to the contract that has been signed on
the lease of 5 years. Nevertheless, as in the case of Williams v Roffey Bros & Nicholls
(Contractors) Ltd [1] that Magic Pty Ltd. has provided Roger with a practical
benefit [2] of guaranteeing the rental collection that could release the financing
difficulty within a short period of time.

There is another similar case to that of Brennan J, namely, Central London Property
Trust Ltd v High Trees House Ltd [3] . Which could be used to analyse the case of
Roger and Magic Pty Ltd. In the case of High Tress Case, Central London Property
Trust Ltd. has agreed upon a reduction of ground rent with High Trees House Ltd. on
the basis of conditions of a war, as Magic Pty Ltd. has asked for under the
circumstance of economic stress, and High Trees House Ltd. has paid the reduced
rental for more than 10 years from 1941-1954, which is the similar to what Roger has
acted over the past eight years, and then, Central London Property Trust Ltd. sued
High Trees House Ltd. for the arrear.

Likewise, it has been judged that there was a promise to accept a lower rent rather a
higher one if it were acted upon, which is binding even if there is no consideration,
and it refers to the fact that the offer by Magic Pty Ltd. of reception of a reductive
rent rather than what has been concerted in the agreement of 5 year lease is binding
with respect to the law. Consequently, it is evident that if the corporation would like
to go back on the promise it would be disadvantageous for Magic Pty Ltd. to retrieve
what it thought has been lost.

Magic Pty Ltd. would argue that Roger refused to pay the rent at $ 3 000 per month
even if the business in the industry is getting to reverse. With the development of the
printing industry, Magic Pty Ltd. intended to demand Roger for the complete rent as
it has been concerted in the contract before, however, if Roger refused to pay what
Magic Pty Ltd. had requested, and refused to admit the fact that they had reached
upon an agreement on a complete rent, insisting on paying the lower of $ 2 000,
where the promissory estoppel would be claimed by Magic Pty Ltd. in an effort to
get the rent of $3,000 as it has been signed in the contract, then, whether promissory
estoppel is available in the eyes of Brennan?

Firstly, Magic Pty Ltd. has assumed that Roger would have to admit the legally
effectiveness of the commitment since it has paid the rent that could be lower than
what has been agreed upon in the contract, as a result, the assumption that Roger
has been in agreement on the lower rent in the letter that has been sent by the
manager of Magic Pty Ltd. Secondly, Roger should be responsible for the payment of
the utilization of the printing machine, and Magic Pty Ltd. has in fact acted on the
assumption for what the corporation has collected over the past eight months. The
lower rent offered by Magic Pty Ltd. could release the financial burden of Roger, who
has known this benefit and accepted what the letter has been informed him. Thirdly,
Magic Pty Ltd. would have financial loss if Roger had refused to pay a complete rent
under the circumstance of a pleasant economic situation, which could lead to the
detriment. However, there wasn't any written nor oral denial that has been asserted
by Roger so as to refuse to pay the complete rent of $3 000 if the economic situation
could get better.

It could be asserted from what have been discussed above that the enforcement of
Roger to be estopped from the promise of the payment of $ 3 000 per month over
the last eight months under the circumstance of the economic situation is
applicable.Nevertheless, Roger may argue that what has been stated in the letter
sent by the manager of Magic Pty Ltd. was only what it has intended Roger to act
without Roger's content and confirmation to the payment of the complete rent. As a
result, it is very significant to determine whether Roger has been made any promise.
In fact, conventionally speaking, a promise must be unequivocal [1] , explicit and
unambiguous [2] , while it is hard for the court to take silence as a promise [3] . In
Australia and many, if not all, jurisdictions which have adopted the common law of
England, for contracts subject to legislation equivalent to the Statute of frauds [4] ,
there is no requirement for the entire contract to be in writing, that is to say, a
promise would be implied [5] . Thus, Roger could be regarded to make a promise of
the commitment that has been stated in the letter sent by Magic Pty Ltd., meanwhile,
Roger has acted on in accordance with the statement of paying a lower tent in the
letter, and he has never proposed any suggestions and recommendations or
disagreement of the claiming of $ 3 000 by Magic Pty Ltd. as economic situations
getting better, all of which could be considered to constitute a promise [1] .
Therefore, it could be concluded that both parties have been in contradiction in
terms of a rental collection. However, there is not any criteria of what sort of
economic situation, and to which extent, the printing industry could be seen as in a
better economic situation.

Conclusion

To sum up, in could be tentatively concluded that it is indisfensible for Magic Pty Ltd.
to ask Roger for $ 3 000 per month of rent over the past eight months. While,Magic
Pty Ltd. could argue that Roger has to pay the rent of $ 3 000 per month in the
future. In addition, a compromise could be reached by the two parties in accordance
with their own conditions and situations.